Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	330,000
Beginning merchandise inventory	$	22,000
Purchases	$	220,000
Ending merchandise inventory	$	11,000
Fixed selling expense	$	?
Fixed administrative expense	$	13,200
Variable selling expense	$	16,500
Variable administrative expense	$	?
Contribution margin	$	66,000
Net operating income	$	19,800

Required:

1. Prepare a contribution format income statement.

2. Prepare a traditional format income statement.

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Prepare a contribution format income statement.

	Todrick Company Contribution Format Income Statement Variable expenses: Fixed expenses:

	Todrick Company Traditional Income Statement Selling and administrative expenses:

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

	3. Selling price per unit 4. Variable cost per unit 5. Contribution margin per unit

Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

	Traditional income statementradio button unchecked1 of 2 Contribution income statementradio button unchecked2 of 2

Answer 1

Cost of Goods sold = Beginning Inventory + Purchases - Ending Inventory
	= $ 22,000 + $ 220,000 - $ 11,000
	= $ 231,000
Variable Administrative Expenses = Sales - Cost of goods sold - Variable selling expenses - Contribution margin
			= $ 330,000 - $ 231,000 - $ 16,500 - $ 66000
			= $ 16,500
Fixed Selling Expenses = Contribution Margin - Fixed administrative expenses - Net Oerating Income
		= $ 66,000 - $ 13,200 - $ 19,800
		= $ 33,000
1	Contribution Format Income Statement
		$	$
	Sales		330000
	Less : Variable Expenses
	Cost of Goods Sold	231000
	Administrative Expenses	16500
	Selling Expenses	16500	264000
	Contribution Margin		66000
	Less : Fixed Expenses
	Administrative Expenses	13200
	Selling Expenses	33000	46200
	Net operating Income		19800
2	Traditional Format Income Statement
		$	$
	Sales		330000
	Less : Cost of Goods sold		231000
	Gross Profit		99000
	Selling and Administrative Expenses
	Variable Administrative Expenses	16500
	Fixed Administrative Expenses	13200
	Variable Selling Expenses	16500
	Fixed Selling Expenses	33000	79200
	Net operating Income		19800
3	Selling Price per unit = Total Selling Price / number of units sold
	= $ 330,000 / 1,000 units
	= $ 330 per unit
4	Variable Cost per unit = Total variable Cost / number of units
	= $ 264,000 / 1,000 units
	= $ 264 per unit
5	Contribution Margin per unit = Total Contribution Margin / number of units
	= $ 66,000 / 1,000 units
	= $ 66 per unit
6	Contribution Format Income Statement would be more useful for managers in estimating how net operating income wull change in response to change in unit sales